Rich Let Rip

By Robert Milburn

Is the ongoing U.S. government turmoil hitting the economy? Apparently not – or at least not affecting the wealthiest Americans, who have opened up the taps, regardless of what is going on down in D.C. At least that’s our interpretation of the various surveys Penta rounded-up to take the pulse of the most affluent folks in the nation. The findings indicate that well-to-do Americans have resumed pre-crisis spending levels and are optimistic about the future.

The wealthiest Americans are flush with cash and spending. A study conducted by BMO Private Bank tried to drill down the essential question, “Now that we’re five years out of the financial crisis, where do wealthy individuals see themselves financially?” They found that 61% of those surveyed – folks with investible assets in excess of $1 million – felt better-off today than they did before the recession.

By and large, wealthy consumers are exceeding or at least matching pre-recession peaks: 86% are spending more or the same amount on entertainment and leisure; 83% are doing the same on travel and vacations; 81% with club memberships; 80% with collections and hobbies; and 77% with clothing and accessories. BMO reminded us these budgetary items are the first to go when a recession hits.

BMO’s executives were “cautiously optimistic” this could be indicative of broader economic growth. “We still need to see more interest among average consumers, but it’s certainly a good start,” says Terry Jenkins, head of U.S. operations at BMO Private Bank.

The American Dream is alive and well. A subset of U.S. Trust’s “Insights on Wealth and Worth” survey found that 209 high net worth business owners were feeling fine and very upbeat about their economic prospects. Respondents thought business owners were more likely than non-business owners to- “be fulfilled in their work” (72%), create significant wealth (67%), provide financial security for their families (66%) and create opportunities for others (58%).

Though they fretted over the timeless concerns of the bottom-line – higher taxes and the impact of Obamacare are the current worries – 60% still believe that business ownership empowers them to control their own destiny. Government intervention hasn’t shaken that deep-seated American optimism.

Another interesting nugget: a vast majority of baby boomers, 82%, have no intention of passing their business to the next generation. As U.S. Trust’s chief fiduciary officer Chris Heilmann points out, three-quarters of these wealthy entrepreneurs started their own business and “believe their adult children should be left to their own devices since they themselves made it on their own.”

The “Next Generation” is a harbinger of growth. Fidelity’s 6th annual “Millionaire Outlook” study found that Gen X/Y millionaires gave the highest rating ever recorded to the current financial outlook. The Gen X/Y millionaires scored a +51 points on the economy, compared to -7 for wealthy baby boomers, on a scale of -100 to +100. They’re also trading on that confidence: Gen X/Y millionaires are making 30 trades per month, 10 times the rate of boomers.

Young millionaires are as much big spenders as they are active traders; they are three times more likely than boomers to spend on luxury goods. But Bob Oros, vice president at Fidelity, says their purchases are not frivolous but have a purpose. “They are very focused on spending that galvanizes the family and brings them together,” he says. Which means, these younger millionaires are more likely to own vacation homes, while also spending money on country club memberships, foreign vacations and first class flights.

Where did they get their lucre? One-third of their wealth is inherited, according to Fidelity. But 95% of the Gen X/Y millionaires surveyed are employed and have an average annual income of $677,000. It would be nice to know what percentage of them are picking up these fat salaries via the family business or through trust funds, versus how many have earned their paychecks through the sweat of their labor in the outside world. If you add in the sentiments expressed in the U.S. Trust survey, it’s wise to surmise a high percent of the young are earning their salaries the hard way.

Either way you cut it: America’s wealthy are spending and content, newspaper headlines be damned.

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There are 7 comments

OCTOBER 23, 2013 3:02 P.M.

H. Craig Bradley wrote:

FRENCH NOBILITY IN AMERICA

As I thought, the "wealthy", however you choose to define them, appear very at ease and blase' about current events (Benghazi), government shutdowns, debt ceiling, weakening dollar (financial), politics (ObamaCare), slow economic growth per year ( 2% GDP), reported or actual inflation, and persistently high unemployment (7.2%) or much of anything outside of their private world (bubble).

Only another financial crisis on the scale of 2008-2009 would effect them psychologically and cause them to reduce their spending on luxuries. A sharp correction of -40% in the stock market would have an effect on their perceptions, as well. The "wealthy" are the very ones who have the most to lose if we move even farther to the left into communism ( seizure of private account assets as in Cypress). Over time, the trend will march upon them or their heirs. There is no escape in the end, not even for the very wealthy.

OCTOBER 23, 2013 5:18 P.M.

I wonder how their employees are doing? wrote:

Fire up the Guillotine....seriously

OCTOBER 24, 2013 12:19 P.M.

Tiredofflippingthebill wrote:

I thought that they report might be more of what they want to see vs what really is. I wondered how much these folks were paid to be interviewed and provide this type of information -- have always been rewarded for providing this type of information.

I would worry about anyone who does it for free, as they may not really be wealthy, or they may have inherited their wealth. I believe you play you cards closer to the vest when "you built it" out of nothing.

Craig -- I am concerned about everything that you listed below -- plus one more item that scares the hell out of me. What is going to happen when the US dollar is no longer the Global Reserve Currency? China already buy oil without using dollars. Several other economies also trade without converting in and then out of dollars -- India, Russia, Brazil, and more. I think that there are about 40% more US dollars in circulation than there should be. Deadlock Obama spoke about this as if the government standoff could cause this to happen -- he is setting the stage to blame someone else. This is one time where the Republicans, Democrats, and the POTUS need to act and act quickly. This will make everyone in the US very poor if it is not handled/implemented properly.

OCTOBER 25, 2013 9:45 A.M.

I wonder if you think before you post wrote:

"Fire up the Guillotine….seriously"....then their employees will be out of work and starving....seriously
.

OCTOBER 28, 2013 12:36 P.M.

H. Craig Bradley wrote:

Tiredofflippingthebill :

I to am concerned about the antics of our politicians re: budgets and debt ceilings and the decline in the U.S. Dollar. The dollar remains the global standard in most of the world today largely based on confidence, although there is probably less confidence in America today than in 2000. The more our actions cause global investors to lose confidence, the more likely that dollar will be sold or not used to settle accounts overseas. Once a tipping point is reached, interest rates could increase. A spike in rates is always an unknown risk.

Anyway it happens will cause many financial problems for everybody. The Federal government's interest payments would balloon and force instant austerity on other Federal budget items. You could have a recession, compounding revenue problems for government. At this point capital controls are sure to be implemented and possibly asset seizures ( IRA's and 401(K) retirement Accounts), as well.

You won't be able to move money or gold overseas ( no outgoing wire transfers) and cash transactions could also be limited. As you can see, once interest rates increase substantially, everything else devalues ( real estate, stocks, bonds). There won't be anywhere to hide except secure cash, if you have access to it. It could turn real ugly and the sad thing is President Obama wants another crisis and he is not picky about which one. Any crisis for Obama is an opportunity to implement the rest of his agenda. Boy, are we stupid!

OCTOBER 30, 2013 1:04 P.M.

Tiredofflippingthebill wrote:

Craig -- the current situation reminds me of my father telling me about how FDR confiscated all of the privately owned gold in the US under Executive Order 6102 at $20.67/ounce when it was worth $35/ounce on world markets. I agree with you that this time the government will take retirement accounts. I believe they will also take all monies that are currently in pension funds -- don't think the Union bosses will object because most pensions are seriously underfunded.

I think that it will soon be time to pay taxes and penalties (if they apply) and cash out retirement accounts. It will then be time to decide where you want to put your monies and whether you want them in US Dollars or a different currency. This is not just for millionaires. This is something that I believe everyone will need to do. I think that tipping point will be the 2014 election results.

NOVEMBER 3, 2013 4:04 P.M.

JG wrote:

Stupid article. Wealthy/high income people are feeling fine and spend money. Lol. Some of them even work for their money. Lo

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Written with Barron’s wit and often contrarian perspective, Penta provides the affluent with advice on how to navigate the world of wealth management, how to make savvy acquisitions ranging from vintage watches to second homes, and how to smartly manage family dynamics.

Richard C. Morais, Penta’s editor, was Forbes magazine’s longest serving foreign correspondent, has won multiple Business Journalist Of The Year Awards, and is the author of two novels: The Hundred-Foot Journey and Buddhaland, Brooklyn. Robert Milburn is Penta’s reporter, both online and for the quarterly magazine. He reviews everything from family office regulations to obscure jazz recordings.